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November 14, 1997
MOUNTAINS WEST EXPLORATION INC (MWEX)
Quarterly Report (SEC form 10QSB)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Plan of Operations During
the quarter ended September 30, 1997, oil and gas sales were $6,268, compared to 7,394 for the same period in the prior
year. The Company had no other operating income during the quarter. Significant increases in such revenues are not anticipated
by management to occur during the remainder of the current fiscal year or until there is production from the Southeast Gobe oil
and Gas Field. Management anticipates that production from the Southeast Gobe Oil and Gas Field will begin during March or
April of 1998. The status of the Company's properties is as follows: Colorado The Company owns approximately 2,400 acres
of mineral interest in Las Animas County, Colorado. During the quarter these properties were leased to a corporation with
offices in Texas. The Company received, after payment of certain finders fees, $13,900 for the leases and retained a royalty
interest of 2.5% and mineral interest of 15% in the properties. The lessee of these properties is negotiating with the offset owner
to start a drilling program on these properties during 1998. Papua New Guinea a. Petroleum Development License (PDL) 3.
The three oil wells in which the Company has an interest are located on this license. This license has been unitized with Chevron
Oil Company's PDL 4 to the north. The two new PDLs encompass the Southeast Gobe Oil and Main Gobe Fields.
Development of these fields is well under way with an anticipated first production scheduled during the first quarter of 1998.
Chevron, the operator, has announced its intention to commence drilling three additional wells on the unit by the end of 1997 or
early 1998. The Company's interest in the unitized production, after exercise by the government of its right to acquire a 22
1/2% interest in the fields, will be a net 0.88% interest which will result in an anticipated initial production to the Company's
interest of approximately 220 barrels of oil per day. The Company's expenses in this unit is to be carried until the first
production from PDL 3 is sold. Thereafter, the Company must pay its share of all costs of PDL 3. The costs of getting the oil
from the unit to sale has been estimated at more than $175,000,000, none of which will be borne by the Company until after
the first sale of production. After that time, all of the money realized from the sale of the oil will be devoted to repayment of the
carried cost of the project, now estimated to be approximately $300,000,000, which Management believes will pay out in
approximately three years if the Company's share of production is at least 220 barrels over that period of time. b. PPL 189.
This license contains approximately 483,661 acres in which the Company owns a 5.051% working interest. The Barikiwa
shut-in gas field is located on this license and has gas reserves estimated from a low of 163 billion cubic feet to a high of 1590
billion cubic feet. Further valuation will be made to more precisely define the true reserves of this field. A seismic program is to
commence on the Barikiwa anticline before the end of 1997. Results of this program should help evaluate the potential reserves
of the structure. Mountains West Exploration, Inc. Cost of the program will be approximately $50,000. Plans to build at least
one LNG plant, probably on the north coast of Papua New Guinea, has been announced and Chevron has announced plans to
build a gas pipeline from the Papua New Guinea into Northern Australia. Final contracts on this program are scheduled to be
finalized in mid 1998. Either an LNG plant or the proposed pipeline should greatly increase the value of the gas reserves at
Baroque. The Company will have to fund its share of most of the work program of this license which calls for an expenditure of
approximately $6,250,000 over a period of six years. Management has reviewed the costs of this project and anticipates that
the Company's cost over the next year will be approximately $70,000. c. PPL 190. This block of approximately 462,632
acres has many very prospective surface structures located on it. One of these structures will be drilled during the first two
years of the license. The Company has a 3.763% interest in this license. During the previous quarter a new seismic program
costing approximately $1,000,000 was undertaken on the property, but has not yet been completed and evaluated. The work
program for this license calls for an expenditure of $13,500,000 over the next six years and the Company will be required to
pay its percentage share of these costs. Of the total costs that must be incurred by the Company on this new License, 2.5% are
subject to the carried interest granted in PPL 156, therefore, the Company is obligated to pay only 1.263% of the total costs
incurred prior to production from PDL 3 discussed above. The Partners intend drilling an exploratory well on this license that
will test the Wasuma structure. Management now anticipates that the test well will be started near during the first quarter of
1998, and that the Company's anticipated costs in the well will be approximately $160,000. The Iehi shut-in gas field lies on
this license but the reserves are insignificant at this time. d. PPL No. 165. Oil Search, Gedd PNG and the Company have
reached an agreement looking toward the exploration, and if warranted, the development of the lands covered by this license.
Under the agreement, the Company will recapture certain of its costs in acquiring and maintaining the license, and the three
parties have surrendered PPL 165 and have applied for a new Prospecting Permit License covering the newly defined lands
which include lands originally within the boundaries of PPL 165. The Company has a 5% working interest in the new license
and its costs will be carried up to the drilling of the first exploration well that will be drilled on the license. The parties are now
waiting on final approval by the government for the issuance of a new license. The Company is continuing to seek funds to carry
forward the programs which are currently under way. With oil production only a little over six months away, additional wells
being drilled on the Southeast Gobe Oil Field and the gas reserves in Papua New Guinea currently being studied for early
development, the Company should be able to acquire the necessary funds, either through borrowing or through sale of equity,
to meet its payment obligations under each of the licenses. However, the Company does not presently have the liquidity that
may be necessary to meet any call for payment of expenses and the Company has no present assurance of the availability of
any of the funds that may be needed at the time needed. The failure of the Company to meet any cash call made on it for its
share of the expenses incurred on any concession could result it its losing its interest in the concession. Changes in Financial
Condition The Company has experienced a $22,248 decline in cash through the first nine months of the current fiscal year due
to the ongoing operating expenses of the Company. The Company's total debt increased $370,232 during the quarter as a
result of additional expenses of exploration being paid by the Company's partners. The Company's primary liability is a
continually developing carried interest in certain New Guinea oil and gas rights. The Company's total liabilities other than those
created by this carried interest are approximately $109,347. It is Management's belief that the Company will be able to
continue to meet its financial commitments during the remainder of the fiscal year. During the first nine months of the year, the
Company experienced a decrease in total assets because of the exercise by Papua New Guinea of its option to acquire an
interest in the PDLs. Due to this acquisition, the Company's debt was reduced by approximately $700,000, while its interest in
the production from the properties was reduced to approximately .88%. The Company's interest in the PDL remains carried
until the first production from the PDL is sold. It is management's belief expenditures for the rest of the year will be minimal and
will, in addition to the ordinary day-to-day costs of operations of the Company's offices in Albuquerque, consist of the costs of
the President's travel to New Guinea to meet with other owners of interests in which the Company has an interest, including the
owners of the PDL and all of the PPLs. Because of the effort being devoted to completing pipe-line and bringing this property
on production Management cannot predict how many such trips may be necessary. Because Oil Search has agreed to bear the
costs of developing an exploration program for PPL 165, Management does not anticipate any additional costs or expenses
related to that license until the time that a well on the license must be drilled, which Management believes will not be until 1998,
at the earliest. |
